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American hospitals kill a staggering number of people. About 100,000 patients die each year of infections picked up in hospitals, more than double the number killed annually in car crashes. Most of these deaths could be prevented with remedies as simple as adequate hand-washing by hospital staff. Another 100,000 die every year of misdiagnoses, botched procedures, and other plain-vanilla examples of medical malpractice.

Of these 200,000 annual deaths, a huge share might be prevented under a system that is run according to the principals of a competitive marketplace, insists David Goldhill, whose father was one of the victims. In Catastrophic Care, the author expands on his widely discussed 2009 cover story in the Atlantic. The title of that article is part of the subtitle of this informative and engagingly written book.

Catastrophic Care: How American Health Care Killed My Father—and How We Can Fix It

Currently CEO of the Game Show Network, Goldhill brought a businessman's perspective to the hospital in which his father died, a "technologically advanced" institution that seemed to have "missed out on the revolution in quality control and customer service that has swept all other consumer-facing industries in the past two generations." He saw overflowing garbage cans in the supposedly sanitary intensive-care unit. The "drab and uncomfortable" rooms for the patients were unlikely to help fortify them for recovery. And the "bizarre scheduling of hospital shifts" amounted to a sick and sickening game of musical doctors, all polite and intelligent, but none of them able to arrest his father's decline.

Goldhill reports that his party affiliation is Democratic. Yet, the author puts forth proposals that are hard to pigeonhole. The Democrats will appreciate his call for national universal health insurance for catastrophic conditions, but they won't like his proposal for radical change in the way we pay for most health care.

Catastrophic Care begins, not with the story of Goldhill's father, but with the story of "Becky," an employee of Goldhill's company. Becky, 26 years old, thinks the $2,500 she spends per year on health care, through premiums and out-of-pocket expenses, is a bargain. Not so. "Becky will actually contribute over $10,000 to America's health care system this year," writes Goldhill. Of the unaccounted for $7,500, about three-quarters consists of her employer's contribution to the premiums for her insurance, with the rest deducted from her paycheck in taxes.

As the author rightly points out, however, the entire $10,000 is either directly or indirectly paid for by Becky, even though she is aware of only a small part of it. And "even if we somehow eliminate the explosive growth in health-care costs—literally reduce growth to zero—our current system already ensures that Becky will pay well more than $1.2 million into it over her lifetime." Moreover, "this assumes she never has a major illness, in which case she will almost certainly pay much more."

The Beckys of this world would do far better if they paid for most of their health care directly. "We as individuals may be terrible consumers of health care—scared, uninformed, and emotional," the author concedes. "But so what? The history of the past 45 years makes clear that the Surrogates are even worse consumers—although for different reasons."

Those "surrogates," which include private insurers, Medicare, and Medicaid, cannot be relied on to protect our interests as consumers. "Indeed," writes Goldhill, "continued expansion of the health-care economy produces far more benefit for them as institutions.…Forty-five years into the rise of the Surrogates, we should no longer be shocked that health-care prices and health-care excess reign unchecked."

On the popular proposal for just one Surrogate—the much admired "single payer" system—the author points out that "for most health services, ours is already a few-payer system," and also notes sardonically, "I'm pretty sure that I've never heard a single-payer proponent cite the success of the single-payer model in the defense industry.…"

American health care, writes Goldhill, "isn't an example of 'socialism' or 'profit-driven' medicine. In fact, it's such a strange beast that I'm not even sure that we have an appropriate label for it." He attempts to locate one by analogy in the Galapagos Islands—"set so far offshore from the mainland of industrial evolution and economic laws that it has produced odd, anomalous creatures of policy and regulation." Government has been highly involved in U.S. health care for a very long time, introducing countless market subsidies and regulations and then coming up with new reforms to address problems driven by the previous ones. At this point, we're dealing with distortions of distortions of distortions.

Breaking out of the mind-set of these distortions, Goldhill plausibly imagines a world in which "some hospital chain would decide to become the Wal-Mart of health care, aggressively driving down costs and passing on the savings to customers," while "another chain would decide its best business opportunity lay in becoming the safety leader," with still another viewing "service and comfort as its best opportunity to create a brand in the eyes of patients." All patients would benefit from such competition.

The author views the Affordable Care Act as more of the same—a continuation of the failed policies of the past 45 years. In a section appended to the main text, he predicts that Obamacare may even lead to fewer people being insured, a forecast that is starting to be borne out by events. All such approaches, as Catastrophic Care reminds us, can also mean the death of you.

JEREMY LOTT is editor at large for Real Clear Politics.

Climate Change

The debate heats up

Reviewed by Bjørn Lomborg

Yale economics professor William Nordhaus was one of the first academics to contribute an economic model to the standard models of climate change. His Dynamic Integrated Climate-Economy, or DICE, model from the early 1990s showcased what all such models have shown since: Cutting some CO2 is a smart idea, but cutting too much can be very costly. Along with other economic modelers, Nordhaus thus became a staunch defender of the global-warming debate's middle ground, much to the frustration of both climate skeptics and alarmists.

The Climate Casino updates the persuasive case for this middle ground, buttressed by elegant arguments and striking facts. But the discussion also includes florid passages of surprisingly undocumented environmental alarmism that detract from the overall message.

The Climate Casino: Risk, Uncertainty, and Economics for a Warming World

On the sober side of the argument, Nordhaus successfully challenges the claim of New York Times journalist Justin Gillis that production of food will decline due to "human-induced global warming" Not only is there huge potential for farming to adjust to warming conditions, but higher temperatures of as much as five degrees Fahrenheit will most likely increase agricultural yields in many regions of the world. The result will be a reduction rather than an increase in food prices.

On the issue of health and disease, the author points out that even in disease-prone Africa, the rise in the incidence of disease from climate change will be 3% at most, and that even this estimate is probably "exaggerated." He emphasizes an irony with upbeat implications: Rapid economic growth is central for scenarios producing global warming, but with higher incomes resulting from that growth, disease is manageable and will be managed.

Among passages that run counter to hard-nosed analysis, the author worries about extreme risks and tipping points. For example, he expresses concern about the possible demise of the Amazon rain forest. But he doesn't include new research from the group originally responsible for the worry that shows "a much lower risk" than originally thought.

Nordhaus produces a global-warming cost curve that shows that warming causes about a 0.2% loss of global gross domestic product now, and will result in a 4.5% loss of GDP by century's end. Though he says this is based on a 2009 meta-study, or synthesis of other studies, he neglects the fact that it shows that global warming is a net benefit up to the year 2070.

Based on his DICE model, Nordhaus proposes a carbon tax of $20 a ton by 2015, which he estimates would cut CO2 emissions by 20%. This counters the skeptics who say there should be no cuts, but also the alarmists who urge dramatic cuts in CO2.

While I would argue that Nordhaus uses his model to come up with estimates that are on the high side, I applaud his basic idea. But I have three issues with his specific argument. First, he focuses on carbon taxes as the main solution, perhaps because that is what his model can do. But the main solution lies in making green energy cheaper. This will happen through research and development of green technology, which he himself concedes "is a central part of any strategy to reduce CO2 emissions over the long run, with or without carbon-pricing policies."

Second, he ignores fracking as a solution for the next couple of decades. Fracking in the U.S.—which involves switching from coal to much cleaner gas—has probably reduced global CO2 emissions by twice what Kyoto and European Union policies have managed. Yet, fracking does not even appear in the index, and while coal to gas is mentioned once, wind is inexplicably called the "real gold."

Third, he does not adequately take into account the inefficiencies of actual climate policies. He points out that poorly designed policies lead to little carbon reduction at a high price, and offhandedly suggests that they are generally twice as costly as they need be. But it's even worse than that; the world's largest climate policy from the EU is probably three or more times more inefficient than it need be, due to wasteful methods of implementation.

Overall, The Climate Casino gives a good overview of climate economics. The cost of global warming over the century will be "small relative to the likely overall changes in economic activity"—maybe 1% to 5% out of improvements in per capita gross domestic product of 500% to 1,000%. Hence the book's core message: We should cut some CO2, but only some.

BJØRN LOMBORG is the author of Cool It and The Skeptical Environmentalist. He blogs at Facebook.com/bjornlomborg.

Money vs. Wealth

Magical thinking at the Fed

Reviewed by Jeremy Hammond

In this lively and largely persuasive indictment of the Federal Reserve, investment consultant and free-market advocate Hunter Lewis summarizes key points in the often-admired tenure of departing Fed Chairman Ben Bernanke that are comparable to those of previous Fed chairmen.

Just before the housing bubble burst, Bernanke assured us that there was no housing bubble, only to declare immediately after that its "impact on the broader economy" seemed "likely to be contained." A month into the Great Recession, Bernanke announced that the Fed "is not currently forecasting a recession." This same economic "Wizard of Oz" then proceeded to do more of what caused the problems in the first place—via his policy of zero interest rates and quantitative easing—except on an even greater scale than before.

Free Prices Now! Fixing the Economy by Abolishing the Fed

Interest rates, Lewis emphasizes, are particularly important prices in an economy, since they allocate scarce capital. Yet these are the very prices that the Federal Reserve manipulates by creating money out of thin air, mainly through the purchase of government debt. A consequence of the central bank's price manipulation is the creation of artificial booms characterized by unsustainable "growth," inevitably leading to bust: the housing bubble, for example, which Bernanke helped cause when as Fed governor he supported then-Chairman Alan Greenspan's low-interest-rate policy.

The more recent "forced reduction of interest rates to the vanishing point," argues Lewis, has not even succeeded according to the Keynesian standard of boosting demand. One reason: The policy has hammered the interest income of consumers, swamping the benefit of reducing the costs of borrowing. The enduring sway of John Maynard Keynes results in what Lewis calls "the progressive paradox"—the belief that we need ever-more government intervention, including more price fixing, in order to solve all of the problems created by previous government interventions.

"Unfortunately, printing money cannot create real wealth," Lewis advises us. "Saving, sound investment, and hard work are all needed for that." To unleash those factors, he says, we should abolish the Fed.

Mixed Signals

The bad news isn't so bad

Reviewed by Mark Calabria

Financial markets can be tough places to navigate. Even the most experienced participants must often rely on the word of others. Corporate reputation therefore serves a vital function, according to Yale law professor Jonathan Macey's engrossing treatment of reputation in financial markets. Firms overcome the asymmetry of information between buyers and sellers by investing in reputation. The key to having a reputation is that it must be expensive and difficult to build, and yet easily damaged in the event of bad behavior.

To illustrate punishment in action, the author tells the story of Bankers Trust in the early 1990s. BT moved away from its traditional core of retail banking and into merchant banking, where it developed a reputation as a pioneer in the swaps market. Two large transactions with commercial clients Gibson Greeting Cards and Procter & Gamble resulted in significant losses for these clients and large gains for Bankers Trust. Both companies sued BT but lost in court. Yet, even though Bankers Trust won the litigation battle, it lost the reputation battle. Its abuse of client relationships destroyed the firm's reputation, leading to an eventual sale to Deutsche Bank. The lesson here was that even if you stayed within the law, treating your clients shabbily in a reputation-dependent business was the kiss of death.

The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street

According to Macey, however, the opportunistic use of law by prosecutors has undermined the reputational impact of being prosecuted. The turning point came with Drexel Burnham Lambert. Brought to prominence by the junk-bond king Michael Milken, Drexel rose from obscurity to the top ranks of investment banking until regulators and the Justice Department forced it out of business. The firm's demise launched the career of Rudolph Giuliani, who, as a federal prosecutor, used the Drexel case as a springboard to become mayor of New York.

Giuliani blazed the path for both Eliot Spitzer and Andrew Cuomo in using large Wall Street settlements as a stepping stone for higher political office. The result has been that politically motivated prosecutions and settlements have destroyed the reputational signal from government charges. When prosecutions were grounded firmly in the law, they alone could bring down a firm. Now almost every firm on Wall Street has been charged with something at one time or another, and it has become impossible to separate the good from the bad based upon prosecutions, given their often blatant political nature.

Additional case studies focus on the decline of reputation among credit-rating agencies, auditors, law firms, and stock exchanges. Macey also details failings at the Securities and Exchange Commission, and explains how that agency also undermines the disciplining power of reputation. Regulation can ultimately be no substitute for reputation, and the author offers little hope that regulation, particularly at the SEC, can be improved significantly.

The case studies are the most absorbing parts of this book, which often reads like a lament to a lost friend. But in the end, Macey offers more support for the decline of reputation rather than its death. Some degree of reputational discipline must surely remain in our financial markets, even if badly blunted.

MARK CALABRIA is director of financial-regulation studies at the Cato Institute.